Dave Ramsey: We saw the effects over the past few years of people not using cash. Millions of people used credit cards to buy things they couldn’t afford. When times got tough, they did not have any cash reserves to bail them out. Many people think using cash is weird, but to me, using cash is smart. Not only do you spend less when you use cash but you also free yourself from dealing with credit card companies! If you want to be paperless use a debit card.
The best way to avoid debt is by having a plan for your money. By creating a plan for your money, also known as a budget, you will be able to create an emergency fund and avoid debt. And remember, you have to learn to say “no”. If you can’t pay cash for it, you can’t afford it.
When is it appropriate to take out a loan for either a car or school?
Car payments and student loans are the quickest way to prevent wealth building. There is never a time I suggest going into debt for a car or for school. Most people have car payments and student loans their entire life simply because they didn’t have a plan. If you are in a situation where you need a car quickly, save $1,000 and buy yourself a beater. If you save what the average person pays for their monthly car payment, $495, you’ll have nearly $5,000 cash for a car in just ten months!
Student loans are toxic, once you have them you can’t get rid of them. There is a myth that you can’t be a student without loan, but that is not true! Many students work 30 to 40 hours each week in order to pay for school. You may not be able to go to a private college or you may have to go to community college for two years, but what you are going after is knowledge, not pedigree. In fact, a recent study showed that students who worked during college actually had better grades than those who didn’t work.
What are some of the pros and cons to having a credit card?
There are no positives to having a credit card. If you play with snakes you’re going to get bitten. Even if you pay the card off, you’re still not beating the system. Many studies have shown that you spend less when you use cash because there is an emotional attachment. If you must use plastic, use a debit card. There isn’t anything you can do with a credit card that you can’t do with a debit card except go in debt.
When saving for large purchases, such as a car, I suggest using a simple savings account. Most of these won’t give have high interest rates, but they will allow you to easily access your money. If you are in need of a car and you have the cash, use it. If you don’t have the cash, then you need to begin saving so that you can pay cash for your car. I don’t ever suggest going into debt to purchase a vehicle. You may not be able to purchase a nice vehicle immediately, but if you continue to save and make sacrifices you will be able to in no time.
How does one go about buying a car or renting an apartment without having credit?
It is easy to buy a car or rent an apartment without credit – pay cash for your car and show the company you’re renting from proof of income and recent bank statements. As long as you can show your landlord that you have a steady income and your debt to income ratio is low (if you have debt), then you should have no problem finding a place to rent.
Would you recommend a monthly health insurance plan or participating in a health care sharing program similar to Samaritan Ministries?
There are a number of these types of programs that have great reputations for doing what they say they’ll do. If you’re serious about this, I’d recommend looking for one that has a solid track record of several decades. You also need to make sure you fully understand the coverage issues—what you get and what you don’t get—and realize that, technically, you have no guarantee. Remember, this is not traditional insurance. That means they’re not backed up by the insurance commission’s risk pools, and they’re not regulated by the insurance world.
How do you balance out being frugal with one’s money, but at the same time, giving out of faith?
Being frugal doesn’t mean holding your money with a tight fist. Whether you are trying to be frugal or not it is important to maintain a generous spirit. If your budget is tight you don’t have to give in the form of money, you can always give your time.
What are your thoughts on house refinancing?
Refinancing makes sense if you can lower your interest rate enough to pay for the closing costs before you plan to sell your home. So if you’re only going to stay in your home a year or two it probably isn’t a good plan.
When investing, at what point would it be appropriate to change your financial advisor?
What are you thoughts on Federal Income Tax?
Federal Income Tax is something we have to pay as American citizens. People spend too much time debating over it and trying to avoid it when it is simply a fact of life.
Do you recommend family members investing in a car or a house together? Why or why not?
I never recommend making large purchases with friends or family members. I have dealt with hundreds of families in which well-meaning people loaned money or cosigned to “help.” If you cosign or loan money to a friend or a relative, the relationship will be strained or even worse, destroyed. We don’t control how debt affects relationships; debt does that independently of what we want. The borrower is servant to the lender and you change the dynamic of relationships when you loan loved ones money. While it is fine to give money to friends if they are in need and if you are in a position to help, loaning them money will mess up the relationship.
Seeing that interest rates for new cars seem to be much lower than used cars. Do you think that it would be a wise investment to spend a little more on a new car and get a lower interest rate or buy an older car with a higher interest rate?
If you can’t pay cash for the car, don’t buy it. But even if you do have the cash, I wouldn’t suggest buying a new car unless you don’t mind losing thousands of dollars. A new car loses thousands of dollars before you drive it off the lot. The average millionaire drives a two-year-old car with no payments. If you insist on driving new cars with payments your whole life, you will literally blow a life’s fortune on them. If you are willing to sacrifice for a while, you can have your life’s fortune and drive quality cars.